10-QPeriod: Q3 FY2005

Fidelity National Information Services, Inc. Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 7, 2005For Securities:FIS

Summary

Certegy Inc. reported its third-quarter and nine-month results for the period ended September 30, 2005. The company saw revenue growth driven by its Card Services segment, up 11.4% in the quarter and 11.9% year-to-date, supported by strong performance in North America and international markets. Check Services also contributed to revenue growth, albeit at a slower pace. A significant event highlighted in the report is the proposed merger with Fidelity National Information Services, Inc. (FIS), announced in September 2005. This strategic move aims to combine operations to form a larger, publicly traded entity. The company also incurred substantial merger and acquisition (M&A) costs during the period, impacting operating income. Furthermore, Certegy is exploring a joint venture in Brazil, which could further reshape its international presence. Financially, Certegy demonstrated solid operating cash flow generation, though net income saw a decrease in the third quarter due to M&A costs and the sale of its merchant acquiring business, which resulted in a significant gain in the second quarter. The company also continued its practice of returning capital to shareholders through dividends and maintained a share repurchase program.

Key Highlights

  • 1Consolidated revenues increased by 7.7% to $282.8 million for the third quarter of 2005 compared to the prior year, driven by strong performance in the Card Services segment.
  • 2Announced a definitive merger agreement with Fidelity National Information Services, Inc. (FIS) in September 2005, which will combine the companies to form a new publicly traded entity.
  • 3Incurred $7.0 million in Merger and Acquisition (M&A) costs during the third quarter of 2005 related to the proposed merger and potential Brazilian joint venture.
  • 4Completed the sale of its merchant acquiring business, recognizing a gain of $45.4 million (pre-tax) in the second quarter and $3.0 million in the third quarter of 2005.
  • 5Card Services operating income increased by 2.6% to $36.7 million in the third quarter, while Check Services operating income saw a significant increase of 22.6% to $18.4 million.
  • 6Diluted earnings per share from continuing operations decreased to $0.36 in the third quarter from $0.41 in the prior year, largely due to M&A costs.
  • 7The company continues to manage its balance sheet effectively, with $105.3 million in consolidated cash and cash equivalents as of September 30, 2005.

Frequently Asked Questions

The most significant development is the announcement of a definitive merger agreement with Fidelity National Information Services, Inc. (FIS) on September 14, 2005. This transaction will combine Certegy and FIS into a single publicly traded company, with Certegy shareholders retaining approximately 32.9% ownership post-merger. Certegy will also declare a special cash dividend of $3.75 per share to its pre-merger shareholders.

For the third quarter of 2005, consolidated revenues increased by 7.7% to $282.8 million, primarily due to growth in Card Services. However, operating income decreased by 3.6% to $43.0 million, and net income declined from $27.3 million to $23.3 million. This decrease was largely attributable to $7.0 million in merger and acquisition costs, as well as a decrease in income from discontinued operations.

Certegy completed the sale of its merchant acquiring business in stages during the second and third quarters of 2005. The sale generated $57.0 million in the second quarter, resulting in a pre-tax gain of $45.4 million, and an additional $3.0 million in the third quarter. The results of this business were classified as discontinued operations, contributing positively to the nine-month net income figures for 2005.

Card Services revenue growth was driven by increased card processing volumes in North America and international expansion, along with contributions from prior year acquisitions. Check Services revenue growth was primarily fueled by the cash access business and new customer signings, partially offset by declines in domestic point-of-sale check services. Check Services operating income saw significant improvement due to reduced check guarantee losses and better collection rates.